Portfolio Construction and Risk Budgeting (5th Edition)

Portfolio Compression

Portfolio Compressionis a one-stop guide for compressions, applicable to all derivatives, with a particular focus on energy trading products. This book provides a step-by-step, pragmatic description of this technique that reduces the transactions in a portfolio, while taking care that profits and risk remain the same or within acceptable differences. Compressions are not only a requirement under EMIR and Dodd Frank, but have also been used by trading companies to reduce cost of capital, regulatory, operational, credit and collateral risk.

Author Diana Higgins shares her 16 years of experience in commodity trading managing credit risk on gas, electricity, oil, metals and emissions. She takes you through the concepts, analysis, procedures and essential rules involved in a compression task, and uses examples and check lists to help decision makers and executors in their journey.

Portfolio Compressionexplains concepts in the risk management framework that are fundamental when approaching compressions. The book covers credit risk concepts, and shows how in OTC and in cleared transactions, trading risks migrate between market, credit, treasury and operations.Portfolio Compressionexplains how to enter into compressions with other participants, how to analyse a portfolio of transactions to find compression opportunities and how to comply with EMIR.

Chapters cover:

Bilateral and multilateral compressions;

Analysing the portfolio for compression purposes;

How to reduce collateral requirements;

How to recognise fundamental credit, treasury and other enterprise risk framework implications;

How to identify legal, systems, market risk, back office, finance and other tasks required to execute compressions; and

The six steps in a bilateral and multilateral compression task, this includes a tick list useful for project management purposes.